Give an example of two products that are substitutes. Explain why they are substitutes.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of substitutes. For example, Cape Cod potato chips and Lays potato chips would be considered substitutes. People could eat Cape Cod potato chips in place of Lays potato chips and vice versa. As a result, if the price of one of them increases, then the demand for the other will increase.
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The discount rate is
a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves.
Refer to the accompanying figure, which shows the market for cups of coffee. At the original market equilibrium:
A. 50 cups are sold per hour at a price of $1.00 each. B. 60 cups are sold per hour at a price of $1.50 each. C. 40 cups are sold per hour at a price of $2.00 each. D. 50 cups are sold per hour at a price of $2.50 each.
If an individual consumes more of Good X when his/her income doubles, we can infer that
A. Good X is an inferior good. B. the demand for Good X is perfectly inelastic. C. the individual is highly sensitive to changes in the price of Good X. D. Good X is a normal good.
The more sensitive quantity demanded is to a change in price, the
A) smaller a change in price must be to induce a certain change in quantity demanded. B) greater the absolute price elasticity of demand. C) smaller the absolute price elasticity of demand. D) closer the absolute price elasticity of demand is to zero.